Nova Ljubljanska Banka d.d. (NLBR) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. I'm Constantino, your Chorus Call operator. Welcome, and thank you for joining the NLB Group conference call and live webcast to present and discuss the second quarter 2020 and first half 2024 financial results.[Operator Instructions] At this time, I would like to turn the conference over to Mr. Blaz Brodnjak, CEO; Mr. Andreas Burkhardt, CRO; and Mr. Archibald Kremser, CFO. Mr. Brodnjak, you may now proceed.

Thank you very much. Welcome, everyone. Good afternoon to the regular performance call. Let me first -- I'll drive your attention to the disclaimer and then move to actually what we believe has been another very strong quarter, delivering as per all dimensions of what we have been guiding for. What is especially encouraging is that we have been growing the business. So of course, there have been always questions about the sensitivity on -- upon the net interest income. But of course, we have an interest in various measures among which one of the most important ones have been actual growth of business. So in both retail and corporate, we've seen a very solid mid-single-digit growth in the first half of the year, and that's especially encouraging because it is, of course, signaling the economic activity in the region and on the other side, the strength of the households of the region. At the same time, we have successfully issued a couple of notes by that, of course, delivering as per the M&A requirements on one side and on the other side, strengthening the capital base as well, which is, of course, allowing further growth, both in organic terms and in M&A in terms. We have, in May, communicated the new strategy, addressing the upcoming midterm period until the end of 2030, which was immediately more or less followed by some attempts, obviously, to grow the business also inorganically. So on top of a very strong first half through the organic growth, we have been in the midst of closing activities of acquisition of Summit Leasing. We expect to actually close the transaction in mid-September. I'm going to talk about this a bit later on in a bit more detail. And we published the voluntary takeover offer for the Addiko Group, which has been still pending and acceptance period has been [indiscernible] expiring in mid of August. In this respect, we have also been following the guidance when it comes to the dividend payouts. So we have, at the general assembly in June suggested to the general assembly and AGM then also approved the payout of EUR 110 million, which is the first tranche, the first half of the expected payout for this year. And I mentioned before, we have been very close to actually obtaining all of the approvals, just the ECB approval is missing for the Summit Leasing acquisition, which will, of course, materially improve our position in leasing market in Slovenia, becoming the leading provider of leasing services in Slovenia, adding Croatia as a geography. And by that, actually in 4 geographies trying to -- not trying, but actually intensively building the asset base in leasing services as well. Main pillars of the new strategy have been, as mentioned, organic growth, which is high single-digit organic growth accompanied by some tactical M&A, addressing EUR 5 billion to EUR 6 billion of assets. One of such attempts -- immediate attempts has been, of course, the pending offer for Addiko. On one side, on the other side, clear that clearly, there will be other following in the upcoming years. In terms of numbers, we would want to double the business, exceeding EUR 50 billion, which we see as a critical mass for the stand-alone successful development of this business in the midterm and long-term future. We would like to actually increase the revenue base to exceed EUR 2 billion. And from this EUR 2 billion ideally making also more than EUR 1 billion of net income, which would be more or less almost doubling as well from today's perspective and by that, accreting a lot of value to our shareholders. Macro of the region has been quite favorable. So there are forecasts from various institutes regarding Slovenian growth between 2.5% to 3% this year, somehow 2, 2.5% real growth next year, 2.5% to 3%, depending on whom you ask. And for the region, very comparable numbers. So we've seen historically low rates of unemployment, basically full employment, which is speaking about strength of the household. On the other hand, 2% to 3% growth is also talking about pretty healthy cash flows of the corporates. There's been still a subdued demand for lending in terms of corporates, but we have been addressing this with high activity of our sales teams and by that, also growing market shares across geographies in corporate lending as well. So overall, this is a promising environment for the upcoming midterm period that should cater for and facilitate for delivery of the strategy. And we are looking forward optimistically. By that, I would pass the word to Archibald to give you more details on actual numbers and developments.

Welcome from my side. And again, it's a pleasure and an honor to present another strong quarter. You see the result is, I'd say, firmly in line with what we expect, actually exceeding and we'll come to that slightly. You see revenues and pre-provision trends positive. Of course, we'll talk about NII and the fact that basically tests for now peaked. But here, the short comment is that we have deliberately invested a bit of tactical NII into NII stabilization. And I think most importantly, the highlight, I would say, is a stronger-than-expected loan growth, which really shows through across the region, in particular, in retail. And of course, it's part of our delivery attempt to maintain and build market share. We actually increased market shares in most geographies and are really very happy about what we see as Blaz mentioned, the macro backdrop really provides for good volume and revenue growth opportunities, both in NII and fee. Cost dynamic clearly shows a bit of lag from still high inflation environment we've seen last year. We've seen numbers on the previous slide come down already. So in that sense, that is an expected tail. And let's not forget, this year, we, of course, have to start showing and growing the so-called balance sheet tax in Slovenia, which is the cost base ballpark as we have indicated earlier, with around about short of EUR 30 million or around that number on an annualized basis, and we accrue this now on a quarterly basis. So that's a bit of a burden on the cost side. And subject to your taste, you show it either as cost, which we technically have to or as a tax burden, but technically chose having cost, just to remind you about that because clearly, cost dynamic is something -- well, we watch on a fundamental level, but there's also some technicalities happening here. Otherwise, ROE 19% on a normalized basis, we are scratching 30%. So these are just phenomenal results. Of course, with also the particularity of releasing provisions. Andreas will talk about that in more detail. So cost of risk for the time being negative and which for sure is a bit unusual, but we'll come to that. But as I said, highlight clearly strong loan growth. And we, as a bank, as a group, we -- I tend to say, operate on all cylinders these days in all businesses, all geographies, both on the rate revenue as well as on the fee revenue side. You have heard me comment a little bit on the peak in the margin, which I think is a fair and anticipated development. So we saw rates coming down both in EU and also in the non-EU some. But this is testament to positive macro development. So low inflation is for sure something we all desire. And in that sense, of course, note that the operating margin has actually slightly gone up. So this strong revenue environment that I indicated before is still even boosting the overall business margin. So in that sense, we are really, I would say, proud and happy to look at these results. And as we said, we deliberately invest a little bit from our rate revenue highs into future stabilization of NII. So we have cumulatively booked some EUR 2 billion in balance sheet measures, both on balance and off balance, roughly half-half as hatching basically just extending duration on balance sheet. And this has, in essence, reduced NII sensitivity by something like 25% or so. So that's a good sensible investment, giving up a bit of short-term revenue to stabilize midterm results. And with anticipated ECB movements that certainly should pay off. Loan dynamics, I mentioned, that's really the highlight I would claim. Strong business and you see 5% year-to-date in retail, 4% in corporate. So that's really stellar, and we are very proud and grateful actually for our business developing in that way. We have continued to, of course, work also on the business origination in extending more fixed and higher duration assets. And of course, that is all well in line with our strategy and should feed future revenue growth. And in that sense, on the deposit side, that is a flattish development, as you see because what we gain in retail, we lost a bit in corporates. But in corporate, we deliberately don't take part of competitive, let's say, term deposit market. So in that sense, that's a development we can live with, given our, of course, very strong liquidity position. But for sure, increased focus and the tension on the liability side of the balance sheet is more and more of a priority. And we are mindful of that and working on that both in terms of offering service and convenient access to this product as much as also competitive deals. In that sense, our [ beta ] is still well below I would say. Most banks we have as predicted entered double digits with a small still upward trend. But everything absolutely in margin of anticipated development. So in that sense, all solid. I have mentioned that we have reduced NII sensitivity. So we come down something like EUR 20 million in absolute terms, which, of course, serves all the right purposes. Both regulators like to see lower NII sensitive investors asking all the time about NII sensitivity. So to manage this number down a bit, I think, was the right thing also done in the right timing. On non-interest income, as said very good positive developments across the board. In particular, we'd like to highlight very strong asset inflows into Skladi, our fund management universe. And you see that this engine is really roaring. So that's fantastic to watch. And of course, we'll continue to work expanding also the product range here and making access to this product line more convenient for our customers. Further, of course, we are working very intensely to extend this franchise into other key markets outside Slovenia, that is Serbia and North Macedonia, of course. So in that sense, good developments. We talked about cost. Q2 was a bit cost heavy as well with some one-off effects, one of which was variable payments in Slovenia, in particular, on individual contracts on the back of strong '23 results, so the payout effects now Q2. And in that sense, a bit above trend, I would say, cost growth, and again, be mindful, we show the balance sheet tax in the cost base. On capital, not much to report. Of course, we continue to run our Fortress balance sheet with the strong capital ratios. We have -- as you know, we have basically solidified our position with capital instrument issued earlier in the year. That was the EUR 300 million benchmark and at very reasonable rates. So the capital markets franchise is solid. And the ratios are, of course, continuing to be strong and then substantially above any regulatory threshold, which gives us the, of course, desire to capacity for both dividend payments and M&A as we have mentioned. So on the funding side, again, nothing to add. Just that we also, of course, issued EUR 500 million on the senior preferred dimension. That is all in anticipation of, of course, the upcoming integration of Summit Leasing, which will eat into our surplus that we currently show. And just to reiterate, the Capital Markets franchise and footprint is now really well established, and we run our liability now on fairly competitive terms, which is also shown by the secondary market performance of our outstanding new issuances. But let I pass over to Andreas on asset quality.

Thank you. Welcome also from my side. As you heard already before, from Archibald growth in all segments of loans is very good. Here you see a little bit more differentiated and maybe, well, to stress consumer retail with the strongest growth that's actually desired. So we are very happy about that. Of course, on the midterm, you will see a little bit higher cost of risk from that, which, however, is far overcompensated by better margins. So that's good. And if you see the comparison on the geographies, obviously no surprises, no big developments. But overall, what you can see over time is that still the markets outside Slovenia are growing a little bit faster. The portfolio, you're used to that now is quite diversified. So no dramas in the second quarter. We had quite some increases in construction industry. That's to a good extent, project financing. It's actually rather granular, so it's quite some cases, mostly with other short turners. So here, you will see some fluctuation up and down, but actually also good development. On the staging, I mean, the most striking on the most easily visible is obviously retail here. You see another, well, jump in Stage 2 in this year. This is primarily improvement in methodology. So we are getting more granular, we are having better weighting scales. We are having more parameters. And what you see is that we are now simply approaching much closer to European averages, which, to an extent, is a normalization. On the other side, as I'm saying already since, I guess, now 2 years with higher inflation, which we had for a while and higher interest rates. Of course, you see also a little bit pressure on the retail side. This is in relative numbers neglectable. But you see in Stage 3 that now, we are very slightly increasing. So EUR 5 million that's obviously on the portfolio neglectable, but you see it. On the other side, we are still improving Stage 3 with corporate slightly, but still, you see a certain move now also in this year on Stage 2 of corporate, design reality. 3 bigger cases, 2 of them with some delays in the project but not in loan repayments or 0 delay. In one case where with a little bit weaker client, we saw some changes in the management. So 3 cases, unrelated, nothing which will repeat by our understanding in future quarters and all of them with 0 delay. And by the way, because I missed to say that before in retail from the stage 2 cases, 72% also have 0%% delays. So that's really more on the methodological side what we are working here. If you see NPLs in volumes and in percentages, we increased now EUR 2 million in this year, EUR 2 million in absolute terms. So what I'm saying already since a while is we are now, of course, in absolute terms netting out. We are growing. And nevertheless, we stay stable with NPLs from these NPLs still approximately 1/3 have 0 delays. And the ratio is 1.5%. So I think that's very good. And also, of course, the coverage ratios stay very, very solid. On geographies, we had in meanwhile also normalized Slovenia below 50%, below our overall share in the portfolio. I think that's also natural that was quite different a few years ago. So here, we also in the meanwhile, normalized. Cost of risk, Archibald mentioned before. What we did now in the context of the IFRS 9 review is that also here, we improved methodology and especially, we were also looking closely on overlays and to which extent we still feel them to be necessary and not. And that actually, in the second quarter, triggered some EUR 22 million release of provisions -- and that's why overall, at the moment, we see negative cost of risk. The other portfolio development is very solid, nothing special. Also, what we have to say is that we see still from off-balance sheet, quite some releases so EUR 10 million in the first half of the year, that's, well, above our expectations, honestly. So overall, of course, this gives you a very good picture by half year and release of provisions. Since in the second half of the year, we don't see any dramas coming. And overall, the development is very solid and very stable. We also now revised the outlook. You will hear later on also from Blaz to below 20 bps cost of risk by end of year. With this, I'm handing over back to Blaz.

Thank you, Andreas. So I was talking at the beginning on closing activities of Summit Leasing. So we actually expect to finally close the transaction in mid of September. Then we have already more or less defined the integration road map, which should be finished towards the, let's say, mid of second quarter of next year. And by that operates the leasing business in Slovenia with one entity. As said, this is becoming now a significant pillar of the banking group covering 4 geographies, potentially, of course, adding geographies in the upcoming years. We have clearly expressed ambition to further grow the business potentially also through buyouts of either portfolios, assets, individual assets or obviously, further entities. So this has not ended. However, at this point of time, of course, we are focusing on closing this specific and integrate this specific opportunity. This will, of course, bring immediate funding synergies once closed because we will replace funding that is currently coming to Summit Leasing from other banking group. But of course, the cost synergies are more moderate and would come then later on throughout the process. In any case, by this, we will become the leader of leasing services in Slovenia. And as said, of course, would want to get to this position also in a couple of other markets, predominantly Serbia and North Macedonia and of course, now also Croatia, which is a new market for us. And by that, we'll basically round up as the only and the first financial institution operations in the entire region of Serbia and Yugoslavia. This is leading, of course, then to another opportunity, which is the opportunity potential or potential acquisition of Addiko Group. We have published the voluntary takeover offer and it has been a midst of more or less progress. So we believe that this offer is a transparent, equally treating all shareholders attractive offer, which allows efficient and favorable access to our shareholders. And by that, of course, this highly complementary assets would enable NLB to further strengthen its position in the existing home markets and adding clearly also potentially subject to regulatory approvals, banking business in Croatia by which we will become also universal distributor of financial services in Croatia as well, the largest country in the region as per the GDP currently. And potentially becoming then, of course, the fourth pillar of NLB Group besides core Slovenia, a large Serbia, potentially large Croatia, and then, of course, other countries of Southern Eastern Europe contributing comparable size, let's say, in terms of the pillars of the group. We have high hope that this, of course, will crystallize yet it is far from certain. So it is -- we all know the complexities. We are aware of the complexities. We are not the only bidder, as said, I would just reiterate, this is the transparent equally treating all shareholders , and we believe attractively priced offer. And of course, we cordially invite our shareholders to tender their shares into this offer until the 16th of August. By saying that, I would move to the outlook. So Andreas already mentioned the improvement in the guidance of the cost of risk. So yes, it is end of July. We've seen very, very promising developments, of course, also now in the July, which is somehow giving us confidence that we believe that the cost of risk towards the end of the year actually will not adversely develop in a sense that, of course, we would see what we have been guiding for. So in this respect, we believe that this should remain below 20 basis points. We have already generated mid-single-digit growth of loan volume, which means that, of course, it would be no -- not really serious but still guiding for the mid-single-digit growth. So we expect that this will now be, of course, a high single-digit growth. And this is, of course, a very good news because this means that, yes, we are addressing net interest income sensitivity also by volume growth and rerouting of course, the liquidity reserves and optimizing the balance sheet from the very low LTDs towards a bit higher engaging, obviously, in client business, which is consumer lending, which is leasing, which is carrying, of course, prices, nominal rates that are even north of what ECB rates are, i.e., we are by that, obviously, compensating for the loss of liquidity reserve placements and [indiscernible] pricings, predominantly coming from the corporate, right? And we have improved also the return on equity guidance from around 15% to higher than 15%. Of course, we also have to understand the normalized levels. We are still operating with quite some capital buffer, which is, of course, meant to address the M&A opportunities. And as I just was reporting, we have been in an advanced stage of eventual acquisition that would exactly address this level of available buffers and by that, more or less optimize the capital structure on one side. On the other side, we would address this capital structure by in case of, of course, this developing further. Eventual AT1 issuance by which we want to retain capital strength and at the same time, retain high payout of dividends. Both is good news, we believe, for all stakeholders, shareholders and regulators and of course, clients of the banking group. This is all, we believe, good news, very good news. And in terms of the strategy context, we have communicated these figures. So this is the North Star aspiration for the period until end of 2030. So we really would want to become and aspire to become a sizable business group for, of course, this part of the world, reaching tapping EUR 50 billion of size in terms of total assets. But furthermore, focusing on profitability, retaining pretty high return on assets generally overall, of course, on the go, also return on equity and by that, sharing this success with a significant dividend payouts on the go. So we believe that this business, if we were able to deliver the strategy would be, of course, worth multiple of what it is worth today, and this not only for the capital gain in terms of market capitalization, but of course, also throughout -- through significant cash payouts in form of dividends. It has been addressed by very solid organic developments as we are reporting them, but at the same time, innovative thinking, entrepreneurial spirit in sense of how we can understand the payment opportunities, eventual other ancillary services. We have been talking about eventual proprietary entries into life insurance and insurance business, which we have been doing very, very well in Slovenia. So there are a couple of strategic plays potentially at hand, and there are a couple of still unknown, uncharted eventual opportunities coming our way. So overall, organic high single-digit growth should cater for, let's say, EUR 44 billion, EUR 45 billion, and the rest should come from the M&A in terms of assets. But as I said, we would not be compromising on the quality of underwriting criteria and principles and we were able to deliver this growth, of course, following and sticking to these principles, profitability should be part of it as well. That much from our side as a presentation. Thank you very much for listening. And now we are, of course, gladly responding to any questions or comments you might have. Thank you.

[Operator Instructions] The first question comes from the line of Nellis Simon with Citi.

I have 2 questions. My first one would be on fee income. So you had a very nice increase quarter-on-quarter, and I see it's driven by payments and cards. I'm just wondering what's really behind that and how sustainable that growth is? And my second question would just be if you could on the leasing -- on the new leasing M&A, if you could indicate whether the margin that you'll generate on those assets will be accretive or dilutive to group NIM?

On fee income, indeed, I actually should have mentioned we have very successfully, let's say, revisited some of our arrangements with the providers we work. And this has shown quite visible upticks that indeed are sustainable. So we booked the uptick in Q2, accruing for all of H1, but H2 is going to show pretty much a comparable number. So indeed, that was a structural improvement and congrats to the colleagues that worked on that. The second question on -- I think it was on further leasing M&A, if I understood the question.

Yes, on the new leasing acquisition, whether the NII that you get...

The Summit Leasing. So Summit Leasing, of course, Summit Leasing, of course, as we call it technically a bit funding synergy. But of course, it's nothing else than placing roughly close to EUR 1 billion in higher yield assets, and that in itself should by the way, show up both in loan growth and in to some extent, next year revenue growth. But for sure, this year in loan growth, you'd see a higher number than even what we just presented if we close and conclude and consolidate Summit Leasing this year. And that, of course, next year translates into at least on that balance sheet side, something in the ballpark of 100 bps, 200 bps at least in incremental revenues, right? To be fair, there is also a cost base that we absorb. So that is still a bit of piece of work. Blaz talked about the integration process, etc. There will be some costs associated to restructuring. But this is all business as we understand it very well. We are very excited about welcoming Summit Leasing to our group, and we really look forward hit the ground running, explore all the business and market opportunities that present themselves in traditional and also in nontraditional ways. We just today discussed at the Board also opportunities in online distribution, etc. So yes, leasing is a core part of our franchise. And as you know, we also very successfully expand in Serbia and North Macedonia. And of course, are very excited to have now also footprint in Croatia. So plenty of opportunities in leasing. We always claim that EUR 2 billion is the ambition. Probably we'll revisit that ambition upwards in our next strategic outline.

And sorry, if I could just have one follow-up. Your outlook for 2025, those financial targets do not include Summit Leasing. Is that right?

'25 includes -- just '24, '25, of course, includes Summit Leasing. '24 frankly, the high single-digit loan growth is not really accommodating for Summit Leasing because technically, we will, in all likelihood, start to consolidate with the end of the year, and that is everything excluding Summit Leasing. If you include Summit Leasing, you run the numbers, but it probably adds some 6 -- EUR 800 million in leasing assets.

We're replacing ECB balances, obviously, with leasing assets, and these leasing assets have been carrying 5%, 6%, 7% nominal rates, right? So this is also one of the measures addressing NII sensitivity because we're replacing something that should drop significantly with something that it will not drop to these levels.

So the loan balance will increase, but the assets will grow.

Not necessarily much, but the structure will change, right?

The first webcast question comes from Martin with Allianz. First question -- 2 questions regarding the Addiko. In Republika Srpska, your current market share stands at 20%, while Addiko Bank holds 10%. If the acquisition of Addiko goes through, this will elevate your combined market share to nearly match that of the market leader in Nova Banka, both at roughly 30%. Given this significant increase, do you anticipate any demand from local regulators in Republika Srpska the approval is granted? Also, if other acquisition goes through, is there any point in continuing listing Addiko on Vienna Stock Exchange since NLB Group is already listed on 2 exchanges.

Well, this is -- these are very specific questions to something that is part of a strictly regulated form of process. So we can't speculate on what regulators would or would not do. Seemly coming at par with other competitors signals that there should not be -- no problems, I guess, from regulators, but I can't speculate on that clearly. So the other part of the question, I missed -- Yes, the listing. It's premature. It depends really of the outcome. So we have offered 200% of shareholders. We will see where this ends up. There is, of course, a critical element of it, at least for us, and of course, the success of this offer, which is a success threshold of acceptance of 75% at least, right, which means minimum 75% of voting rights need to be obtained. And this could be then 75% plus 1 share or this could be 100%. And depending on the outcome, this would determine then what is the follow-up. We have had a good experience with minorities, for example, in North Macedonia. We have a listed bank in North Macedonia with some 83% ownership and the 17% is listed, and there is a very nice coexistence. In Commercial Banca case, where we successfully, of course, signed more than 90% and then, of course, performed the squeeze-out. We have then, of course, retreated from the stock exchange because this would be an effective just listing a couple of percent. So it really is depending on the outcome of this offer.

Next webcast question is a follow-up question from Anton with Allianz. I have a question regarding the issuance of MREL that in countries outside of Slovenia. Who is expected to be the primary buyer of these bonds? Will it primarily be absorbed by the NLB Slovenia or by high net worth individuals who are already clients of the private banking department? Or will the MREL bonds be offered through a public issuance on local stock exchanges?

Very interesting question, whereby, of course, the regulatory purpose of MREL is pretty clear. So it is to be sold to qualified investors. So this is not to end up in the hands of private individuals as a basic principle of the instrument. So it's going to be a combination of various possibilities. First is the intragroup lines, which we can always provide, right? The other is super nationals, which usually are participating in such issuances there are some other institutional investors that have been investing in our, of course, nodes and might have interest to also invest on the subsidiary level. So it is difficult to say right now what would be the form and shape of each individual issuance of individual entities. It's going to be a combination of all. Of course, to the possible extent, we want to keep these flows within the group. It is economically sensible and logical from whatever is required to be then actually sold in the market or obtained from the market would follow the logical chain. So super nationals usual suspects and then, of course, qualified international financial investors.

Just that we will never compromise on our multi-plant point approach. Otherwise, it really depends a bit market to market. They are not at the same level of development. In some markets, we see a potential to do local issuance because there's an institutional investor base. In other markets, it's going to be more relying on, let's say, IFRS, for example. But indeed, it's a fair question and a fair challenge because, frankly, this instrument was conceptualized for Europe with a fairly well-developed capital market and now applying the same 2 converging markets its going to be more of a challenge. But we look forward to it, and we think we'll be well equipped. And in some markets, it might even accelerate a bit of a, let's say, a capital market readiness. So in that sense, we want to be part of that in a positive way and look forward to it.

It's a very important point, Archibald today it stands as a multiple point of entry. So in terms of primary context, we want to keep our subs self-funded, right? So we will never expose the parent Institute to the extent that this might jeopardize actually the logic of this.

The next question comes from the line of Dodig Mladen with Erste Bank.

I have 2 questions. So first one is regarding the takeover of Addiko. I mean I don't know if you can answer me, but I must ask, is there any scenario in which you would drop your 75% condition at the last moment? I mean, depending on how many shares will be deposited on August 16 or you will stick firmly to that condition? And the second question is yesterday in the parliament here in Serbia, the third time governor said that there will be some -- during the fall, he'll implemented some limits on the interest rates now besides mortgages also on cash loans. I don't know if you have any details on this. If you have please share, if not, then we will just wait and see what will happen.

The success threshold of 75% is here to stay. We will not compromise on this condition because, of course, we want to effectively, of course, then engage in meaningfully integrate Addiko Group into the NLB Group. And this, of course, requires decisions such as of potential listing delisting, such as potential, of course, mergers, more mergers, such as dual brands, no dual brands. And you have to have effective powers in your hands to actually execute this without -- Capital measures, for example. You need 75% power at the AGM simply to be actually agile enough and actually run the business safely enough also in regulatory context, predictably enough. So this is not to be compromised. 75% success threshold is here to stay and will not be dropped in the last second. Regarding the measures in Serbia, we've seen, of course, various restrictions in last year. So it was first fees, then it was the housing rates, right? More potentially consumer rates. We are simply closely monitoring and respecting this. And of course, this has more or less material effect on our financials. We understand these measures, of course, as measures that go in favor strictly of clients of the banks. So we've seen some other measures that we're trying to benefiting more to benefit the budgets of the countries, which is a bit of different logic, right, introducing taxes, interpreting certain products differently. In this case, what National Bank of Serbia is doing above all congratulations to Ms. Tabakovic for the third mandate and from the bottom of our hearts, we believe she is running excellently the monetary policy of Serbia throughout last year. So this will simply sit and wait what's going to happen and how this is going to impact. We would believe that it would not be too material of an impact, but let's see.

The next question comes from the line of Brzoza Robert with PKO BP Securities.

It's about the process that you have changed regarding the identification of Stage 2 exposures mainly it's the result of this revision more concentrated in other localities than Slovenia. Or is it more or less evenly spread throughout the geographies where you operate? And also which types of loans have been affected mostly by these developments?

I mean, first of all, what we are doing, we are introducing a vital rating scale, that means we differentiate more detail between clients. This has many advantages. But of course, it also differentiates more. Earlier -- when you see Stage 2, then we have included additional criteria just to give you one example, if we see gambling habits, that's an early warning sign. And on geographies, well, I mean the rating scales, that's primarily a topic for subsidiaries. The additional early warning signals, well, it's basically distributed throughout the group. So I would say, overall, relatively equally spread improvements, but that also means you shouldn't see now another spike in a short period. And one indication for that is also, as I said, that simply this is now coming much closer to European averages. So what we simply see is that obviously now the way how we are looking on staging of retail clients is more comparable. And that should help us, of course, in the mid run, even more to limit NPLs because the earlier we recognized a Stage 2, the earlier we will intervene and eventually also change some parameters. So on the mid one, that should help us actually to even better manage risks. Of course, on the short one, you just simply see this spike in Stage 2. But what you can also see is that it's not spiking then in Stage 3, which is logically given what I explained.

It is actually us consciously working more on soft collection and early restructuring as well. So it is enabling us actually to move earlier and more relevantly. But yes, as Andreas says, there is no historical evidence that staging 3 and actual defaults would be a problem for this banking group. It is other -- rather actually guiding us towards us being even more conservative and proactive in understanding our portfolios, which have so far not caused significant damage. But of course, since we are moving more aggressively in brackets intensively focusing on consumer lending, we want to be, of course, much more conscious about when and how to intervene if needed.

Are you going to expand it a grading system to over, for example, [indiscernible] which tend or between the retail and the proper corporate segment later in the year, for example.

I'm not sure that I copied your question.

Are you going to apply the same process that yielded those increases in stage 2 retail exposures to SME, small and medium enterprises as well?

No. Actually, in the corporate area, we have this wider rating scale. So you will not see a comparable move on the corporate side, no.

[Operator Instructions] The next question is a webcast question from our participant Anton from Allianz. Regarding your securities portfolio, can you disclose the primary countries whose government securities you are mostly invested in? Additionally, with 60% of your securities portfolio currently classified as held to maturity. Do you anticipate this percentage to increase in the coming quarters?

It's -- we talk and that's well disclosed in our detailed accounts. So we talk basically European Union, talk a little bit of U.S. And of course, we talk to some extent, home sovereign. So this has come down over the last, I would say, 2, 3 years. But of course, the region is something we care about and want to remain invested in also believe in the credit quality. But what you see is below investment grade is, in essence, our own home region. On the HTM, I think we have, I'd say, well-defined process and policy. So things where we take longer duration is typically in HTM securities where we take sure the duration is typically in fair value. And that follows a pretty logical conception. And in that sense, I see this ratio to remain rather stable.

Next question is a follow-up question from Anton with Allianz. Regarding mobile leasing in Croatia, do you plan to rename it after the acquisition is complete? What are your plans for its organic growth? In which direction do you want it to grow?

We like the name. Mobile Leasing is a very universal name. And in short term, we don't intend to change it. It's simply a good name. And we will open it up. So, so far, it has been more or less focusing on Mercedes vehicles, and we will simply open it up to become a universal provider of leasing services and in future mobility services. So we have high hopes for this business to become, of course, one of the meaningful businesses in Croatian market. We understand it is a competitive market, but we also see ourselves with our adjacent regional presence the one that can accompany Slovenian, Bosnian, Serbian and other businesses also with our subsidiaries in Croatia as well. So we believe we can leverage this business significantly. I wouldn't now operate with concrete numbers, but of course, multiplying it in multiple terms, it should be the normal level of ambition.

The next question is a webcast question from Nicolai with Morgan Stanley. Do you have any idea about the time line for the AT1 issuance?

Well, it's July autumn.

We have indicated that we are open-minded. AT1, as you know, is of course, a higher risk instrument. Capital markets have been very perceptive to our name. So I really appreciate also the trust of all our investors in our fixed income space. We have done a lot of work in expanding that investor base. So we are confident that if we were to access the market, it will be perceptive. And indeed, it's, of course, a bit of a function of what happens on the M&A on one side. On the other side, we'd like AT1 as a capital markets instrument in Slovenia to be not disadvantaged as it currently is. So withholding tax, there is a positive development in this direction. So we hope that takes place. I think it would be important for the Slovenian banking space and further development of Slovenian Capital Markets. So we would very much appreciate that the resulting tax restrictions or costs that are currently in place are falling because that would indeed substantially increase our incentives to tap the market here. It is obviously a subject of was progressing with Addiko because if there is, of course, not a successful outcome, there is absolutely no fantasy in issuing AT1 at this point.

The next question is a webcast question from Jovan Sikimic with RBI. Why you have not upgraded the revenue outlook after notably lifting loan growth outlook for both 2024 and 2025, having in mind reduced NII sensitivity?

We have just barely overshoot EUR 600 million, and we say we will have more than EUR 1.2 billion, right? So it is in principle somehow halfway consistent. You have pressures on one side and you try to offset these pressures on the other. So we say more than the 1.2. It's, no. Should we do more?

We'd like to beat consensus. So as we -- as you know, it's rather conservative forecast or outlook published we'd like to keep it that way. I mean it doesn't -- because there are indeed tensions in this system, right? ECB rate functions can go faster or slower. We don't know for sure.

And when they do, they do it immediately.

Yes. So in this sense, if you've seen the Fed has put on pause. So if rates stay higher for longer, of course, revenues will -- you've seen the sensitivities, revenue will follow. But for now, we stay rather conservative also in that projection.

There are no further questions at this time. I will now turn the conference over to management for any closing comments. Thank you.

Thank you very much for hanging in there and listening to us and above all trusting our journey after communicating the strategy. We have immediately undergone the first steps of actually proving that we are living it already, both in terms of organic evolution and in terms of clearly also M&A ambitions. We have published concrete transactions potentially crystalizing. So we are, again, cordially inviting all shareholders of Addiko Group to consider tendering their shares into our offer. We believe it's fully transparent, equally treating everyone and it's, of course, also lucrative and favorable exit situation. We believe that is also a bright future for the Addiko group within the NLB Group. We believe we can test some experimental potential dual branding approach and some other stuff, which is also giving future to the talents of Addiko Group. We have really realized that there is a significant value not only in the business itself, but above all in talents of this business, and that's why we believe our offer is also attractive for more or less all major stakeholders, including regulators, who would buy that get, of course, the predictable, stable, strong outcome of how this group could evolve further. Otherwise, we're looking forward really to the upcoming 5, 6 years, within which we believe we would double this business, and we would, of course, also come very close or exceed EUR 1 billion of annual profits, which is, of course, at the end of the day, also show its value in your pockets being investors. Thank you very much again for your trust so far and already in advance for the one in the future. Take care and all success.

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for calling. You have a good afternoon.